The Glazers: MUST Reaction to Sale Rumour …
M.U.S.T: The Daily Mirror carries a story that the Glazers are looking to sell Manchester United as they are disappointed with their investment.
United “is not the cash cow they believed it to be” the journalist claims. The piece goes on to cite boardroom unhappiness and City sources saying how disastrous the investment has been. The Glazers have denied the story – through their UK PR spokesman, of course. United fans have got used to second or third hand communications from our US owners.
Could the story be true? Like the rumoured ‘Chinese takeaway’ story a couple of weeks ago, could it have come from the Glazers themselves in an attempt to stir up some interest in a business which isn’t turning out the way they expected? Or is it coming from a potential buyer trying to publicly negotiate the price down?
On the face of it, there would be no reason to sell now, because the club is still weighed down with long-term and increasingly expensive debt and the Glazers’ ‘equity’ (the value of their stake minus the debt) cannot be much more than what they are said to have paid in the first place – namely £272m. So by selling now, they would not be making the kind of profit they would have been looking for when they bought in 2005.
And after a very shaky first season, when United went out of Europe early and lost Vodafone’s sponsorship, the Glazers seem to brought the club back from the brink. Having paid way too much for the club using ruinously costly hedge fund debt, last summer saw a refinancing which succeeded in paying down most of the hedge fund debt and refinanced the remainder, plus the bank debt, into less expensive loans to the total value of £660m, which still costs the business at least £62m in interest payment each year (“a bit of housekeeping” according to the same PR spokesman).
And with the windfall TV deals and new sponsorship, added to the astronomical ticket price rises over the last 3 years, United’s revenues at last look like growing at the rate required to service the debt – the Glazers are projecting EBITDA of £73.8m for the year ending June 2007 rising to £88.3m in 2008 (against a paltry £48.9m last year). So the future does look brighter than before, both on and off the pitch.
But there are reasons why things might not be so rosy from a Floridan perspective:
· Interest rates are rising fast – United’s bank debt is tied to LIBOR which goes up every time the Bank of England announces a rate hike. Rates have risen 1% since July 2006 and are predicted to go up to 6% and maybe beyond over the coming months. A 6% base rate could see United’s interest bill rise from £62m p.a. to nearly £75m p.a.
· Player costs are also rising fast – the cost of buying and retaining the best players (like Ronaldo, who has just signed a new contract for a reputed £120k per week) is rising not falling. And to buy a hard-working midfield player like Hargreaves for £17m? What will a top striker cost in transfer fees and wages?
· There are reports in the City that the long-expected securitisation at Old Trafford has been pulled. The Glazers’ UK financial guru, Ed Woodward, has been setting this up for over a year and was ready to go once the new season tickets had been sold, with the compulsory cup scheme thrown in. This would have allowed the club to securitise that annual upfront fixed income in the form of a bond (like Arsenal’s 25-year one) at a much lower fixed interest rate than the current senior secured debt. So in the face of rising interest rates, why not fix them now? Well, one argument says that if you are going to sell the club, you don’t enter into a long term bond which will depress the value of your equity and the selling price of the club.
· We are hearing that there is significant resistance from United season ticket holders to the latest price increases and the obligation to join the Automatic Cup Scheme as a condition of renewing. Many fans cannot afford to pay over £1000 a year and we could be seeing a real test of the Glazers claim of a 100,000 waiting list for season tickets.
· Malcolm Glazer is still bed-ridden from his stroke last year. We don’t know how serious this is, but we suspect that Malcolm is no longer in a position to take the business decisions. While Bryan Glazer initiated the United acquisition, only Malcolm had the drive to push it through as a hostile takeover. Now that he may not be in the driving seat, we think there may be family tensions about holding onto an asset which is in a faraway land (about which they know little), which is causing them never-ending problems and to which none of them (except maybe Bryan) has any emotional attachment.
There we have some powerful reasons why the Glazers may wish to sell up despite the prospects for the future and despite the fact that they would not be making much profit out of their acquisition if they sell right now.
Whatever happens, the Glazers tenure at Old Trafford has demonstrated that if you don’t have the fans onside at the start, if you don’t carry them with you at all times, if you exploit their loyalty and treat the club purely as a business, you are likely to fail. This is a powerful message to any would-be buyer of what is still, despite the Glazers, our club.
